The Fresno Bee Utility crisis may trigger nostalgia over California's annual surpluses

(Published March 2, 2001) Under other circumstances, Gov. Davis and the Legislature would be preoccupied these days with the not-unpleasant chore of spending billions of extra state dollars on enhanced public services and facilities and/or tax reductions.

That's more or less been the Capitol's mode for the past five years as the state's surging economy generated many billions of dollars in surplus tax funds.

Democrat Davis and his Republican predecessor, Pete Wilson, had the wherewithal for sharp increases in politically popular spending on education and untold amounts of pork barrel spending -- and cut taxes to boot.

On paper, matters look almost as rosy this year. Despite a national slowdown, California's economy continues to perk along with high employment and, of course, high tax revenues, particularly those from the state income tax. Looming over this year's budget-writing exercise, however, is an enormous and very dark cloud: the highly complex utility crisis that could both depress tax revenues and impose immense burdens on the state treasury.

The state is spending more than $1 billion a month on spot market power purchases to keep the juice flowing, a chore that Sacramento assumed after private utilities exhausted their credit two months ago.

No one knows when -- or even if -- those direct power purchases will be replaced by long-term supply contracts.

In theory, when long-term contracts are in place, the state will issue revenue bonds to cover them, and the state's own treasury will be repaid whatever has been spent on the spot market power purchases.

But we're at least two months away from that, which means that the state will be at least $4 billion into the hole -- and it could be much longer and much greater. No one really knows.

Even if it's just two months and $4 billion, however, it's very uncertain whether the state's general fund and other pots of money being raided for power purchases will be repaid immediately. To do so might well trigger a utility rate increase because the revenue would be needed to service the bonds.

The more likely scenario -- although no one really knows for certain -- is that the money being advanced now for power purchases will be considered, in effect, a long-term loan that will be repaid slowly, so as to minimize its impact on ratepayers. And that means the money would not be available to finance the 2001-02 budget, or at least the extras that would be financed out of the surplus.

That doesn't count, moreover, the money that Davis wants to spend -- at least $1 billion -- directly out of the state treasury to finance energy conservation. And, finally, it doesn't count the potential impacts of the crisis on the state's economy and tax revenues.

So far, economic dislocation from the crisis has been minimal, largely because the impacts have been absorbed by the huge debts run up by utilities and the state treasury. But many experts believe that power rates, at least those in areas served by the private utilities, will eventually rise by a third or more to cover the debts and soaring wholesale power costs, and that could reverberate in lowered investment and job-creation.

A hint of those potential impacts already is evident in the job cutbacks in some plants due to the concurrent spike in natural gas prices.

Given the prospects, Davis and state legislators might be wishing they had socked away more of those extra billions rather than pushing state spending past the $100 billion mark.

Dan Walters writes for The Bee's Capitol bureau. E-mail: dwalters@sacbee.com; mail: P.O. Box 15779, Sacramento, CA 95852.

http://www.fresnobee.com/print/storynews/0,1737,244435.html,00.html

-- Martin Thompson (mthom1927@aol.com), March 02, 2001